Will Your Assisted Living Business Be Profitable? Find Out Now!

assisted living business model assisted living business profitability assisted living costs and expenses assisted living financial planning assisted living investment strategies assisted living proforma projections assisted living startup planning assisted living underwriting financial analysis for assisted living starting an assisted living facility Mar 13, 2025

Starting an assisted living business is a rewarding venture, but ensuring profitability is essential for long-term success. To build a financially sound operation, it's crucial to understand underwriting—the process of evaluating the financial viability and risks of your business model.

In this guide, we'll explore what underwriting entails, its importance in the assisted living sector, and the key elements needed for effective execution. By mastering these concepts, you'll be better equipped to create a thriving and sustainable assisted living facility.

Check out the video, too:

What Is Underwriting?

Underwriting is the financial analysis of historical and projected financials to assess whether an assisted living facility (ALF) is a sound investment. It consists of two main components:

  1. Reviewing Historical Financials:
    When buying an existing facility, request documents like tax returns and profit and loss statements to understand the business's past performance.
  2. Projecting Future Financials:
    You can predict future performance using past data by considering factors like inflation, operational adjustments, and expected resident occupancy rates to enhance your projections.

Why Is Underwriting Crucial?

Underwriting helps you understand your business’ financial health. By looking at past data and future predictions, you can:

  • Identify potential risks or gaps in financial planning.
  • Understand your operating costs and how they may fluctuate over time.
  • Present a well-thought-out financial plan to lenders or investors.

Proper underwriting builds confidence in your numbers, ensuring your assisted living business in Boise, Nampa, or Treasure Valley is financially sound.

Steps to Perform Underwriting

  1. Gather Historical Financials:
    When buying an existing facility, obtain at least three years of financial records, as banks typically need this to evaluate average expenses like utilities, wages, and groceries.
  2. Calculate Averages:
    Calculate annual averages for each expense category and divide by 12 for monthly costs. For instance, if groceries cost $60,000 annually, the monthly average is $5,000.
  3. Develop a Monthly Proforma:
    Create a 24–36 month proforma to project monthly income and expenses, accounting for seasonal changes, one-time payments (e.g., taxes), and recurring expenses (e.g., insurance).
  4. Adjust for Future Variables:
    Consider factors like inflation and occupancy changes. For example, if grocery costs rise by 3% annually, update your proforma.
  5. Account for Startup Costs and Debt Service:
    Factor in initial expenses like capital improvements and operating capital. Knowing your debt service is important for profitability.

Tools to Simplify Underwriting

Using specialized tools can make underwriting less daunting:

  • Free Underwriting Calculator:
    Download the free calculator at Assisted Living Investing to streamline financial data and identify key profitability metrics.
  • Business Planning Guide:
    The guide offers in-depth instructions on crafting projections, assumptions, and financial analyses. 

Refining Your Projections

Underwriting is an ongoing process. After creating your initial proforma, set it aside for a day or two, then reevaluate your assumptions. Repeat this to build confidence in your financial projections.

Beyond the Numbers

Underwriting helps you compare your facility to similar businesses. For instance, a comparable 10-bed ALF in Boise can provide cost and revenue data to inform your projections. Be sure to include clear assumptions in your business plan.

  • Estimated revenue based on occupancy.
  • Adjustments for operational efficiencies.
  • Anticipated growth rates and expenses.

What’s Next?

If you're interested in diving deeper into the assisted living business, download our free Business Plan Checklist to help you create a successful business plan for your assisted living facility. In addition, consider joining the Assisted Living Investing Mastermind program. This 12-month course is designed to guide you step-by-step toward owning and operating your own assisted living facility. With the added benefit of personalized coaching support, the program ensures you have the resources and guidance needed to succeed in this rewarding industry.

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